Bay Area Operating Expense Ballparks: San Francisco Class A: $14 to 18/sf/year, downtown Walnut Creek: $9 to 11/sf/year, suburban garden office: $7 to 9/sf/year. Differential due to property taxes, structured parking, 24/7 security, high-rise elevators versus single-story flex, local tax policy.

Anthony Downs, in his National Real Estate Investor (February 2002) column titled “When will real estate recover?”..."But even if the general economy recovers quickly in 2002, how soon will commercial real estate markets emerge from their current overbuilt phase? As readers of this column know, the commercial real estate markets have three phases: the development boom phase, the overbuilt phase and the gradual absorption phase… Sometime in 2003, the overbuilt phase will give way to the gradual absorption phase. In that phase, demands for space are rising but have not yet driven vacancies low enough, or rents high enough, to stimulate new building. If the recovery then continues strongly, the gradual absorption phase should soon lead into the next development boom phase. But I do not anticipate that happy day occurring until 2004 or even later.” Nor do I, reasons of which has been on the www.officetimes.com web site for several months in an article titled “A Discussion of Why The Office Market Might Not Turn Around Until 2004 (or later).”

According to a San Francisco Chronicle (4/22/02) article on office building parking, a recent study conducted by the State of California Legislative Analysts’ Office found that 86 percent of California commuters drive to work; and 95 percent park free when they arrive. RIDES for Bay Area Commuters’ 2001 Commute Profile found that at work sites with free parking, 76 percent of employees drive alone, while at those without free parking only 48 percent of employees drive alone. The survey also found transit use jumps significantly when employers don’t offer free parking.

I hope some of our readers are planning to attend the upcoming June 17-19 Realcomm Commercial Real Estate Business Solutions and Technology Conference later this month in Las Vegas. I’ll be moderating several panels including automating Internet-Based Transactions, reducing expenses through technology, and speaking on Pushing The Commercial Real Estate Envelope. The organizer of this highly-successful program, Jim Young, is the #1 commercial real estate/technology guru in the world and the more than 50 program sessions will show you the future of corporate real estate technology and tools. More than 2,000 attended last year, and if you’re interested please go to www.realcomm.com or call Janice Young at 760-736-2627.

Deals and Rumors: I represented Educational Testing Service in its 52,000 sf office lease at 2731 Systron Drive; Verio leased 32,000 sf at 1855 Gateway Blvd., both transactions in Concord. In Walnut Creek, I leased Longs Drug Stores 40,000 sf at 575 Lennon Lane, and Bank of the West is rumored to be expanding by an additional 41,000 sf at 401 Lennon Lane. In San Ramon, ADP is rumored to be leasing 100,000 sf at the new BR1, and Irwin Home Equity might be subleasing 38,000 sf from Verizon at BR15. In Pleasanton the big news was Safeway’s 145,000 sf lease at 4410 Rosewood Drive, CPU Technologies taking 41,000 sf at 5731 W. Las Positas, and Trapese Networks taking 38,000 sf at 5753 W. Las Positas. In Emeryville, Leapfrog expanded by 30,000 sf at Hollis Business Park. Over in Alameda, TheraSense is doing a 64,000 sf build-to-suit at 1360 Southloop Road. In Downtown Oakland, BART is rumored to be looking closely at 1945 Broadway for 200,000 sf, Franz leased 10,000 sf, and IDG Game Pro 24,000 sf, both at 555 12^th Street. Also in Oakland, Computer Sciences took 36,000 sf at 1111 Broadway. Up in Novato’s Hamilton Landing in Marin County, AT&T Broadband leased 26,000 sf. Over in Fairfield, Copart just leased 70,000 sf at Green Valley Corporate Park. Down in Milpitas, Credence Systems will be moving into 180,000 sf, formerly occupied by Sun Microsystems. In San Francisco, The Mexican Consulate is buying the 30,000 sf office building at 532 Folsom St., LeBoeuf Lam Green & Macrae is leasing 14,000 sf at 505 Montgomery St., WeatherNews sublet 11,000 sf at 195 New Montgomery; EGM Capital signed for 11,000 sf at Two Embarcadero; HOK Architects leased 34,000 sf at One Bush Street, Howrey Simon Arnold & White leased 26,000 sf at 525 Market Street; Hoeffer & Arnete leased 11,000 sf at 555 Market St.,Synarc took 12,000 sf at 575 Market Street; Covalent Technologies sublet 20,000 sf and Advent Software leased 48,000 sf, both at 303 Second Street; Merrill Lynch just sublet 20,000 sf to Grand Central at 50 Fremont; Bonneville Broadcasting System expanded by 10,000 sf at 400 Second Street; Cobra Solutions leased 10,000 sf at 55 Hawthorne St., and Intershop Communications leased 10,000 sf at 410 Townsend Street. South San Francisco, Elan is expanding by 66,000 sf at 1000 Gateway, and in San Mateo Serena Software sublet 27,000 sf from RSA Security at 2755 Campus Drive. In Daly City, Kaiser Permanente leased 160,000 sf at 395 Hickey Blvd. for medical offices, and in Redwood City Camitro Corp. leased 33,000 sf and DreamWorks is rumored to be leasing 100,000 sf, both deals at Pacific Shores.

Update from CCIM headquarters (and I’ve been a member for 21 years) on the new leasehold improvement deduction ruling: “Owners of nonresidential rental property who made leasehold improvements in the last quarter of 2001 and who already have filed their 2001 tax return may wish to check with their tax advisors to be sure they claimed the 30 percent depreciation allowance enacted in March. The new rule permits a 30 percent deduction for the cost of any leasehold improvement make after 9/11/01. Commercial property owners who made the improvements and who have already filed their 2001 tax return may wish to check with their tax advisors to be sure they received the benefit.” More info is available at http://www.ccim.com/govt/depreciationstimulus.htm.

Our newspapers one-day business section headlines: San Francisco Chronicle (4/26/02): JDS announces more layoffs; Newark losing 800 Ross jobs; McKesson cuts 100 jobs; Tyco to cut 7,100 jobs, close 24 plants; VeriSign cuts 10 percent of workforce; just to check the market pulse right before sending this newsletter out, San Francisco Chronicle (5/29/02), Vodafone posts record $24 billion loss, Deutsche Telecom to cut 22,000 jobs… nope, the recovery is still not here yet…

September 11 after-effects on the office leasing industry: Can landlords pass onto their tenants whatever new security measures are being taken? What about costly barrier erection to protect buildings from cars/trucks crashing into the building? What about increased or enhanced guard service or monitoring services? What about costly terrorism insurance? Should an office tenant be concerned about leasing in or near a “trophy” building? Are the words “trophy” and “target” interchangeable when it comes to potential terrorist acts? How vulnerable is your building’s common area and parking facilities? Can the landlord restrict access to an underground parking garage due to security concerns? How would this affect your business if these restrictions were long-term in nature? Is your building in the vicinity of potential terrorist targets, i.e. federal/state offices, power plants, national monuments, transit hubs, etc? What could happen to your business if your building were damaged or destroyed and the landlord did not have terrorist insurance? What rights do you have under your own insurance policy?

Buildings (May 2002), regarding noise distraction and employee satisfaction/productivity: “Two recent studies clearly show that speech distraction is rated by employees as the #1 facilities problem that affects their satisfaction and productivity. The two most prominent office acoustical problems are excess noise distraction in an open plan, and a lack of protection for confidential conversations in private offices.” Manage office noise problems with the following cost-effective solutions: 1) Quantify acoustical performance with Computer Acoustical Modeling - This software predicts the level of workstation-to-workstation speech privacy that will result from the current design, while still in the planning stage. 2) Provide higher absorption ceilings, and/or sound masking systems. 3) Select appropriate furniture panel height and acoustical performance. 4) In private offices, use wall systems that minimize sound transmission. 5) Use sound absorption ceiling tiles; treat open-air grilles with sound baffles. 6) Add sound masking.

A new Contra Costa power plant just came on-line with enough juice to serve 800,000 homes, or every household in Contra Costa, Alameda and Solano Counties.

In the Contra Costa Times (5/19/02), California’s population was chronologically laid out as follows: 1941, 7 million residents; 1960, 14 million residents; 2000, 33 million residents, and a sobering prediction that by 2040 there will be an additional 24 million folks living in California, with the population expected to reach 52 million by 2030 and 58 million by 2040. Air quality, water availability, transportation systems are all in jeopardy without sufficient and comprehensive proactive planning (short of “planning” to close the state border….).

It can’t be good news for the office vacancy rate… The San Francisco Chronicle (2/20/02) reported that in 2001, 1.49 million businesses and individuals filed for bankruptcy: “Last year’s filings probably don’t represent the high-water mark for this economic cycle. Even though the recession is coming to an end, bankruptcies are likely to rise again in 2002, experts said.”

The other side of the coin… The San Francisco Chronicle (5/7/02), “Bay Area executives bullish on local economic growth?” “Bay Area executives were much more optimistic about the region’s economy in April than they were three months ago, according to a survey to be released today... 73 percent said they expected the Bay Area economy to improve during the next six months… 39 percent of those responding said they expect to add employees in the next 12 months, while 8 percent said they anticipate workforce cuts.’

According to the Palo Alto’s Center for Continuing Study of the California Economy, “Propelled by its dominance in technology and other fast-growing sectors, California will bounce back from recession, gaining jobs and income at a faster pace than the rest of the nation over the next eight years.” This was published in the San Francisco Chronicle (4/22/02), and continues, “By 2003, tech will be on the mend and the state’s advantages should come to the fore, the center predicts.” California’s strong position in such areas as trade, entertainment and tourism, in addition to tech, will help it create more than 3.5 million jobs through 2010. That represents growth of more than 22 percent during the decade, well above the gain of just 15 percent projected for the nation as a whole. The Metro Area 2000-2010 projected job growth: Los Angeles: 20.6 percent, Bay Area: 24.1 percent, San Diego: 33.7 percent, Sacramento: 28.9 percent.

Long-range workforce supply: Mountain House, the giant planned community between Tracy and Livermore is ahead of schedule, with the main roads planned for June 2002 paving and the first residents expected to move in early 2003. During the next 25 years, Mountain House will be home to 44,000 residents. Those of you who remember what Concord and San Ramon looked like in the early 1970s can envision where San Joaquin County is headed during the next 20 years…

As reported in Buildings (May 2002), Top 9 Reasons Companies Outsource: 1) Reduce and control operating costs 2) Improve company focus 3) Gain access to world-class capabilities 4) Free internal resources for other purposes 5) Resources not available internally 6) Accelerate re-engineering benefits 7) Function difficult to manage/out of control 8) Make capital funds available 
9) Share risks

Jordan Weil has had another awesome past sixty days, culminating with his 5^th year birthday party this past week on May 26. Last month Jordan and several of his buddies went up to Lake Tahoe, which during the season transition is a very special place to be. Snowball fights in the morning, and then miniature golf in spring sunshine in the afternoon. Two weeks ago we went on a two-hour train ride/wine tasting event through the Pleasanton/Fremont countryside, sampling some of the 24 wines that have put the Livermore Valley on the winemaking map. Bumper bowling is one of Jordan’s favorite sports, and it is something to see a young child roll a bowling ball so slowly you keep waiting for the ball to stop midway but it keeps going, hitting the pins in slow motion. Great kids expressions! Jordan also went to the Half Moon Bay Fly-In annual event where they have hundreds of antique and souped-up cars, World War II planes, helicopter rides, and tractor/truck pulls which for non-farmers like us was a hoot to watch. The highlight was a huge F-18 jet fighter doing flyovers wing-to-wing with its counterpart fighter plane from WWII, an almost 60 years age spread in technology. His most recent photos can be seen by clicking here.  Thanks for taking the time to read this, and as always please feel free to call me at 925-279-5590 if you want any more information on just about anything!

Sincerely,

Sincerely,

Jeffrey S. Weil, MCR.h, CCIM, SIOR
Senior Vice President
Colliers International
1850 Mt. Diablo Blvd., Suite 200
Walnut Creek, CA 94596
Ph. 925.279.5590  Fax. 925.279.0450
jweil@colliersparrish.com
www.officetimes.com 

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